Banishing self-cert would be pointless

12 October 2009

The Financial Services Authority has yet again got self-cert in its sights and this time it looks as if it will pull the trigger.

There’s no doubt that self-cert products blended with other risky elements such as high LTVs or sub-prime borrowers can produce a toxic mess that hurts consumers and lenders.

But to ban self-cert on principle on the basis that all mortgage lending must by definition involve income verification would be excessive and naive.

It would be excessive because there are many competent borrowers whose incomes are complicated and seasonal.

The self-employed were badly served by the prime mortgage market until self-cert became established and these consumers certainly won’t thank the regulator for making their lives more difficult now.

And it would be a naive move because the market has seen the FSA coming, meaning that self-cert lending volumes are already close to zero.

Perhaps self-cert has quietly mutated into something less overt. For example, it could be that some of these customers have migrated to the buy-to-let market where the only income tests relate to rental value.

While lenders may try to be vigilant these are difficult cases to identify. The FSA needs to avoid regulation that challenges consumers to circumvent the rules. And that’s a battle the regulator can never win.